NRA: High Fuel Prices Result in Softening of Operators

The July Restaurant Performance Index, which is based on a nationwide survey of restaurant operators conducted in August, stood at 100.9, down 0.9% from June's level of 101.8. Despite the decline, the Index remained above 100, a level which the NRA said represents expansion in its composite index of eight key industry indicators.

"Although the Restaurant Performance Index registered a decline in July, the underlying indicators remained in a positive position in historical terms," said Hudson Riehle, senior vice president of Research and Information Services for the Association. "Operators overall reported positive same-store sales levels in July, and they anticipate sustained growth in the months ahead."

The industry is not without challenges, Riehle observed. "Fully three out of ten restaurant operators identified recruiting and retaining employees as the number-one challenge facing their business, while 18% of operators said high gas and energy prices are the top challenge facing their business."

July's decline in the Restaurant Performance Index was the result of drops in both the Current Situation and Expectations Indices. The Current Situation Index, which measures current trends in four industry indicators (same-store sales, traffic, labor and capital expenditures), stood at 100.5 in July - down 0.9% from June and its lowest level in three months.

Despite the impact of rising gas prices in July, restaurant operators reported an overall net positive same-store sales performance, albeit the softest results in 10 months. Forty-six percent of restaurant operators reported a same-store sales gain between July 2005 and July 2006, while 36% of operators registered a sales decline in July.
In June, 53% of operators registered a same-store sales gain, while 29% reported a decline.

CUSTOMER TRAFFIC ALSO 'TEMPERS' Customer traffic was also tempered in July. Thirty-nine percent of restaurant operators reported an increase in customer traffic between July 2005 and July 2006 - down from 46% of operators who reported traffic gains in June. Thirty-nine percent of operators reported traffic declines in July - up from 31% of operators who reported traffic declines in June.

Although sales and traffic results were not as solid in July, operators reported a net increase in staffing levels. Twenty-three percent of operators said they added employees between July 2005 and July 2006, while 19% reported staffing declines.

Restaurant operators also continued to report steady levels of capital spending. Fifty-three percent of operators said they made a capital expenditure for equipment, expansion or remodeling during the last three months, the sixth consecutive month above 50%.

The Expectations Index, which measures restaurant operators' six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions), stood at 101.2 in July - down 0.9% from June and its lowest level in 10 months.

Although the Expectations Index registered its sharpest decline in 11 months, it still remained above 100, which indicates that operators remain optimistic about growth in the next several months. Forty-nine percent of restaurant operators expect their sales volume in six months to be higher than it was during the same period in the previous year, while 20 percent of operators expect to have lower sales in six months.

Thirty-one percent of operators expect their sales to remain about the same.

Although sales expectations remain positive, restaurant operators are not as optimistic about the direction of the overall economy. Twenty-five percent of operators expect economic conditions to be stronger in six months - down from 31% last month and tied for the lowest level on record. Twenty-nine percent of operators said they expect economic conditions to worsen in six months, while 46% expect economic conditions to remain about the same.

Restaurant operators also appear to be scaling back on plans for new capital spending in the coming months, based on the latest survey data. Fifty-six percent of restaurant operators plan to make a capital expenditure for equipment, expansion or remodeling in the next six months - down from 65% who reported similarly in February.

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